Chapter 9

Losses

Problem 9-1 True or False
Write True if the statement is correct or False if the statement is incorrect.
1. Loss incurred from sale of personal property is ordinary loss.
2. Loss from sale of capital asset is deductible from business income
3. If there is a partial loss, the allowable deduction will be the book alue of the dama!ed asset at the time of
loss.
". #$penses not reported when incurred cannot be claimed as %&L'&.
(. ) loss claimed as deduction from estate ta$ purposes should not be claimed as deduction for income ta$
purposes.
*. +amblin! losses can be deducted from !amblin! !ains and capital !ains.
,. Losses from business operation are ordinary losses.
-. Loss incurred from the sale of business furniture is deductible from business income.
.. Loss from embe//lement of business fund is a loss deductible from business income.
10. Fire dama!e on the sold proprietorship1s e2uipment is deductible from business income.
11. Typhoon dama!e on the residence of the owner of the business is not allowed as deduction from business
income.
12. %et operatin! loss of prior year could be claimed as deduction from business income of the current year.
13. 3artial loss on business property, plant and e2uipment is deductible loss from business income.
1". ) loss claimed as deduction for estate ta$ may be claimed as deduction for income ta$ purposes.
1(. %&L'& could be deducted from ne$t year1s business income of a sole proprietorship which is optin! for
optional standard deduction.
1*. The %&L'& should be deducted from !ross income to arrie at base amount for the computation of 4'IT.

Problem 9-2 Multiple choice
5elect the letter that contains the best answer.
1. Which of the followin! is deductible from !ross income6
a. 3ersonal #$penses c. 7ad 8ebts
b. %et 'apital Loss d. #stimated loss
2. Which of the followin! is not deductible from business income6
a. 'asual losses on properties connected in the conduct of trade or business
b. Loss of business property due to embe//lement
c. Loss on e$chan!e of capital asset
d. %et operatin! loss carry oer
3. If the casual loss on business property is partial, the deductible loss is the
a. replacement cost to put back the business property to its operatin! condition
b. actual cost of dama!ed on business property
c. hi!her amount between a and b
d. lower amount between a and b
". Which of the followin! is not correct re!ardin! %&L'&
a. %&L'& is allowed as deduction from business income for the ne$t 3 succeedin! years
b. 8omestic and resident forei!n corporation sub9ect to normal income ta$ is allowed with
%&L'&.
c. &ffshore bankin! unit of a forei!n corporation is allowed with %&L'&
d. 3riate education institution en9oyin! preferential ta$ rate is allowed with %&L'&
(. Which of the followin! is entitled to claim %&L'&6
a. #mployee with respect to his compensation income
b. Forei!n international carrier
c. &ffshore bankin! :nit
d. 5elf employed indiidual
*. Which of the followin! statement is correct6
; a. %&L'& is an item of deduction from business income
b. 'ompensation earner could claim %&L'&
c. %&L'& could be claimed to!ether with the optional deduction
d. %&L'& is e2ual to operatin! loss reported in the income statement for prior year
,. Which of the followin! is allowed as deduction from business income6
a. Loss on the sale of property not directly used in the business
b Losses on inentory which is fully coered with insurance
c. Fire dama!e on fully depreciated business e2uipment
-. 5tatement 1< Losses claimed as deduction from !ross estate will reduce the net ta$able estate.
5tatement 2< Losses claimed as deduction from !ross estate would also reduce the ta$able income of the
estate
a. &nly statements 1 is correct
b. &nly statements 2 is correct
c. 7oth statements are correct
d. 7oth statements are incorrect
.. 5tatement 1< ) loss in one line of business is not permitted as allowable deduction from !ain in another
line of business, if one of the two lines is e$empt from ta$
5tatement 2< Losses from transactions between related party ta$payers may be allowed as deduction as
lon! as supported by documentation
a. &nly statement 1 is correct
b. &nly statement 2 is correct
c. 7oth statements are correct
d. 7oth statements are incorrect
10. 5tatement 1< When the loss is cause by embe//lement of funds by a known person, the loss sustained is
not deductible on the year of commission or discoery, but in the year when the ri!ht of recoery
becomes worthless
5tatement 2< The loss on mort!a!e is determined upon sale of the property by the mort!a!ee
a. &nly statement 1 is correct
b. &nly statement 2 is correct
c. 7oth statements are correct
d. 7oth statements are incorrect
11. 5tatement 1< 'asualty losses of propectie crops are deductible loss.
5tatement 2< Loss on purchased liestock is a deductible loss.
a. &nly statement 1 is correct
b. &nly statement 2 is correct
c. 7oth statements are correct
d. 7oth statements are incorrect
12. 5tatement 1< 8omestic and resident forei!n corporation ta$ed durin! the year with 4'IT cannot claim
%&L'&.
5tatement 2< 8ecline in the alue throu!h market fluctuation of inestments in stock of a corporation is
not a deductible loss.
a. &nly statement 1 is correct
b. &nly statement 2 is correct
c. 7oth statements are correct
d. 7oth statements are incorrect
Problem 9-3 Deduction from Business income
8urin! the year, the followin! losses were incurred<
). Loss incurred on sale of inestment in stocks 3 200,000
7. Loss from sale of business e2uipment 100,000
'. Loss of personal e2uipment (0,000
Which of the aboe losses could be claimed as deduction from business income6
a. ) c. '
b. 7 d. )ll of the aboe
Problem 9- Deduction from Business income
The followin! transactions transpired durin! the year<
'ost 5ales 3rice
Inentory 31,"00,000 32,(00,000
Temporary inestments (00,000 "(0,000
Land=capital asset> 1,000,000 -00,000

?ow much could be claimed as deduction from business income6
a. 30 c. 32(0,000
b. 3(0,000 d. 3"(0,000

Problem 9-! Deductible loss on fire
What would be the amount of loss that could be deducted from business income for the property that was dama!ed
by fire in 200$ and has a remainin! useful life of " years at date of fire6 The property was ac2uired at 100,000 and
depreciated at 10@ per year without scrap alue.
a. 310,00 c. 3"0,000
b. 320,000 d. 3*0,000

Problem 9-" Deductible loss on #ehabilitate
$ tradin! incurred losses from fire on its e2uipment with a net book alue of 3(0,000 when the fire happened. It will
need 3*0,000 to rehabilitate the e$tent of dama!es on the e2uipment which was not coered by any insurance policy

The e2uipment has an accumulated depreciation of 31(0,000 at date of fire. To ac2uire new e2uipment of the same
type will cost 3110,000. The allowable deductible loss is
a. 3200,000 c. 3*0,000
b. 3110,000 d. 3(0,000

Problem 9-% &'LC'
The net operatin! loss reported in the +))3 income statement is 3(0,000 after 3200,000 operatin! e$penses. 3art
of the operatin! e$penses is a 310,000 bad debts based on estimate. ?ow much %&L'& would be deductible from
the succeedin! year1s income6
a. 32*0,000 c. 3(0,000
b. 3*0,000 d. 3"0,000

Problem 9-( &'LC'
The preious year1s operatin! loss amounted to 3(0,000. ?ow much would be the %&L'& that could be deducted
from current year1s income of business optin! for optional standard deduction6
a. 3((,000 c. 3(,000
b. 3(0,000 d. 30
Problem 9-9 Partial fire loss
The business e2uipment which has a carryin! alue of 32(,000 was partially dama!ed by fire. The actual cost of
330,000 was incurred to put back the business e2uipment to its operatin! condition.

Ae2uired< 'ompute for the deductible loss from business income.

Problem 9-1) Total Fire Loss
The business buildin! with an ac2uisition cost of 31,200,00 and estimated useful life of 20 years was totally
dama!ed by fire at the end of its 10
th
year 3200,000 worth of dama!es was recoered from insurance scrap
recoered were reali/ed at 20,000.
Ae2uired< 'ompute for the deductible loss from business income.

Problem 9-11 Destruction of old buildin*
The business incurred 3120,000 to ra/e down an old e$istin! buildin! to !ie way to the construction of its factory
buildin!. 5crap from the demolished buildin! were reali/ed for 320,000.
Ae2uired< 'ompute for the deductible loss from business income related to aboe construction.

Problem 9-12 Deductible loss and reportable *ain
Bool corporation is holdin! common stocks of Lan! 'orp. ac2uired at cost of 3100,000. )t balance sheet date,
inestments in Lan!1s stocks has a fair market alue of 3.0,000. &n Cune 30 after balance sheet date the inestment
in stocks of lan! were sold for 3110,000

Ae2uired< 'ompute for the deductible loss at balance sheet date and reportable !ain on Cune 30

Problem 9-13 &'LC'
The tradin! business reported a net loss of 3(0,000, net of 3300,000 operatin! e$pense. The operatin! e$pense
included 320,000 estimated bad debts and estimated warranty e$pense of 310,000

Ae2uired< 'ompute for the net operatin! loss that could be carried oer for the ne$t 3 succeedin! years.

Problem 9-1 &'LC'
The followin! are the comparatie income statements of Denus<
Eear 1 Eear 2
+ross 3rofit 3(00,000 3*00,000
#stimated 7ad debts 20,000 10,000
&ther operatin! e$penses (-0,000 ".0,000

Ae2uired< 'ompute for the %&L'& that could be deducted from year 2 income.

Problem 9-1! Mort*a*e Propert+
In year 1, the business foreclosed the property of delin2uent debtor with fair alue of 31,000,000 to recoer the
notes receiable of 31,(00,000. In year 2, the foreclosed property was sold for 31,-00,000.

Ae2uired< 8etermine the !ain or loss in year 1 and year 2.

Problem 9-1" Mort*a*e Propert+
The mort!a!e property with fair alue of 31,000,000 at date of !rant of loan was foreclosed by the bank when the
business oer due loan of 3(00,000 was not paid. The foreclosed property was offered for public auction and no
bidder offered any price. The fair alue at the date of auction us estimated at 3"00,000.

Ae2uired< 'ompute for the deductible loss from business income of the bank

Problem 9-1% ,arious Losses
4r. +uiller 8unon!, a farmer, reports the followin!<
Income from farmin! 3300,000
'ockpit winnin!s (0,000
5hrinka!e of farm products produced 20,000
Loss of potential farm products due to calamities 1(0,000
'ockpit losses 100,000

Ae2uired< ?ow much is the deductible loss6

Problem 9-1( ,arious Losses
4r. 5cotty 5aboy incurred the followin! losses in connection to his construction business<
'ompensatory li2uidated dama!es 3 (0,000
Loss on actual dama!es 30,000
Loss on robbery=construction 5upplies> (0,000
Loss on pilfera!e of business supplies 10,000
7ook alue of partially dama!ed machine due to fire 200,000
Aeplacement cost of dama!ed portion of machine 1(0,000
Loss on sale of capital asset 2(,000

Ae2uired< 'ompute the amount of deductible loss from !ross income

Problem 9-19 &'LC' and '-D
F, reported the followin! !ross receipts, cash disbursements and %&L'&.
+ross receipts 32,000,000
'ost of serice (00,000
'ash 8isbursement "00,000
%&L'& last year 300,000

F opted to deduct &58 because the cash disbursement that represent business e$pense are not properly supported
with documentation.
Ae2uired< 'ompute the followin!<
1. If $ is an indiidual ta$payer, how much is the amount of allowable deductions6
2. If $ is a corporation, how much is the amount of allowable deductions6

Problem 9-2) &'LC'.'-D and MC/T
In the fourth year of E 'o., the company reported the followin!<
5ales,200r 2,000,000
'ost of sale 1,000,000
&peratin! e$penses ..0,000
%&L'& 200a 200,000

8ue to losses and since the company has been in e$istence for more than 3 years, the 7IA re2uired E co. to pay a
minimum corporate ta$ of 2@ based on !ross income.

Ae2uired< 'ompute the followin!<
1. Income ta$ due and payable in year 200r
2. Total %&L'& in year 200a

Problem 9-21 ,arious Losses
) '&. reported the followin! losses durin! the year<
7ur!lary lossGcash (0,000
#mbe//lement lossGcash 2(,000
3ilfera!e lossGoffice supplies (,000
'apital loss on salo of capital asset=lon! term> 10,000
8ecline in the alue of inestment in stocks 30,000
'asualty losses 1(,000

The 7ur!lary loss was reported to the police station within .0 days but such loss was not reported to the 7IA. The
cashier was traced capable for the embe//lement.
Ae2uired< 'ompute the followin!<
1. 8eductible loss from !ross income
2. 8eductible loss from capital !ain

Problem 9-22 Losses from farmin*
The followin! losses were incurred by 8i/on Farms durin! the calendar year<
5hrinka!e loss if farm products produce 31"0,000
'asualty losses of propectie products "0,000
'asualty losses of animals raised in the farm 20,000
8eath of liestock preiously purchased 10,000
'ost of property e$propriated by the !oernment<
The !oernment paid only 10,000 as compensation 30,000

Ae2uired< 'ompute for the deductible farm loss

Problem 9-23 0d1ustment of Losses
F 'o. constructed a buildin! at a cost of 10,000,000 with an estimated useful life of 30 years. )fter ( years,
subse2uent additions and improements which were properly capitali/ed amounted to (00,000. The buildin! was
insured for *,000,000 a!ainst fire at the time it was totally destroyed by fire at year -.
Chapter 1)
Problem 1) 2 1 True or False
Write true if the statement is correct or False if the statement is incorrect.
1. ) selfGemployed ta$payers is re2uired to file his 2uarterly income ta$ return.
2. ) !eneral professional partnership is ta$ed in the same manner as corporation.
3. ) passie income outside the 3hilippines by a nonresident alien is sub9ect to annual income ta$ in the 3hilippines.
". 7oth creditable and final withholdin! ta$es are withholdin! at source.
(. The e$cess of personal e$emption oer compensation income cannot reduce the net operatin! income from
business.
*. In !eneral, passie income within is sub9ect to final ta$.
,. The annual income ta$es are usually increased by creditable ta$es.
-. The optional standard deduction can be deducted from the 2uarterly income ta$.
.. 3assie income within by a resident citi/en is allowed to be reduced by personal e$emption.
10. Aeportin! compensation and business income in one ta$ return usin! the same ta$ rate is an e$ample of !lobal
ta$ system.
11. )llowin! personal e$emption as reduction to ta$able compensation income is an e$ample of !lobal income ta$
system.
12. Aesident aliens are ta$able for their income earned within and outside the 3hilippines.
13. There is net capital !ain if the ordinary !ain e$ceeds ordinary loss.
1". &nly resident citi/en could opt for "0@ standard deduction for business income.
1(. ) sin!le indiidual, fully supportin! his minor sister could claim 3,(, 000 personal e$emption.
1*. ) married indiidual with ( dependent children could claim only 3100, 000 total personal e$emption.
Problem 1) 2 2 Multiple Choice
5elect the letter that contains the best answer.
1. When different type of income are sub9ected to common ta$ rate, the ta$ system is described as<
a. +lobal ta$ system c. scheduler ta$ system
b. +ross income ta$ system d. final ta$ system
2. 5cheduler ta$ system of income ta$ation means<
a. )ll types of income are added to!ether to arrie at !ross income
b. 5eparate !raduated rates are imposed on different type of income.
c. 'apital !ains are e$cluded in determinin! !ross income.
d. 'ompensation income and business professional income shall be added to!ether in arriin! at !ross
income.
3. Which of the followin! ta$payers are ta$ed for income earned within and outside the 3hilippines.
i. Aesident citi/en
ii. Aesident alien
iii. 8omestic corporation
i. Aesident forei!n corporation
'hoices
a. i,ii,iii,and i c. i and i only
b. i,ii and i only d. i and iii only
". a self employed ta$payer is re2uired to file his 2uarterly income ta$ return in
a. 7IA Form 1,00 c. 7IA Form 1,01H
b. 7IA Form 1,01 d. 7IA Form 231*
(. ) domestic corporation is re2uired to file its annual income ta$ return in
a. 7IA Form 1,00 c. 7IA Form 1,01H
b. 7IA Form 1,01 d. 7IA Form 231*
*. The 2uarterly ta$ return of a commercial partnership is re2uired to be reported in 7IA Form
a. 1,00H c. 1,02H
b. 1,01H d. 231*H
,. Which of the followin! is re2uired to file 2uarterly income ta$ return6
a. 'ompensation income c. )nnual income ta$
b. 3assie income d. 'apital !ain
-. )n income ta$ that is used to reduced the income ta$ due at the end of the year.
a. 'reditable withholdin! income ta$ c. )nnual income ta$
b. Final withholdin! income ta$ d. 'apital !ains ta$
.. 5tatement 1< %&L'& can only be deducted from the operatin! income of the last 2uarter.
5tatement 2< The indiidual ta$payer1s personal e$emption can only be deducted from the operatin! income of
the last 2uarter.
a. &nly statement 1 is correct
b. &nly statement 2 is correct
c. 7oth statements are correct
d. 7oth statements are not correct
Problem 1) 2 3 #esident Citi3en4s Compensation
) resident citi/en reported compensation income amountin! to 31*,.(00, net of 322.(00 withholdin! ta$. The ta$
rates for indiidual are as follows<
3-, (00 for 3,0, 000 I 20@ in e$cess of 3,0, 000
322, (00 for 31"0, 000 I 2(@ in e$cess of 31"0, 000
?is net ta$ payable would be
a. 322, (00 c. 3(,000
b. 31(,000 d. %one
Problem 1) 2 Compensation and Business /ncome
4r. ), a 4W#, reported a !ross compensation income of 3.0, 000 and business !ross receipts of 3200, 000. ?ow
much is the net ta$able income if the ta$payer opted to elect the optional standard deduction6
a. 3 J 0 G c. 31*0, 000
b. 3,0, 000 d. 32"0, 000
Problem 1) 2 ! 5uarterl+ /ncome and '-D
For the months of Canuary, February, 4arch and )pril, ahead of family reported a business !ross of 3(0, 000, 3*0,
000, 3,0, 000 and 3-0, 000, respectiely. &ptin! for standard deduction, his net ta$able income for the first 2uarter
is
a. 320., 000 c. 310*, 000
b. 310-, 000 d. 3(-, 000
Problem 1) 2 " Corporation4s &et Ta6able /ncome
) domestic corporation reported a !ross profit of 31, 000, 000. Its sales amounted to 32, (00, 000. Its endin!
inentory is 3(00, 000 more than the be!innin! inentory. Its operatin! e$penses amounted tom 3"00, 0000. Its net
ta$able income would be
a. 31, 000, 000 c. 32, *00, 000
b. 33, 000, 000 d. 3*00, 000
Problem 1) 2 % /ncome Ta6 on Final 0d1usted #eturn
For the preious 3 2uarters, the total income ta$ paid by a domestic corporation amounted to 3.00, 000. Its total
business income for the year amounted to 3(, (00, 000 and e$penses of 32, 220, 000. ?ow much would be its net
ta$ payable per final ad9usted return6
a. 31, 120, 000 c. 3220, 000
b. 3.00, 000 d. 31(0, 000
Problem 1) 2 ( &et Ta6 Pa+able 7#efund8
) resident forei!n corporation paid 3(00, 000 income ta$ for the first 3 2uarters. Its net ta$able income after
operatin! e$pense of 323, (00, 000 is e2ual to 31, (00, 000. What would be its net ta$ payable =refund> at the end of
the year6
a. 3"-0, 000 c. 3 J 0 J
b. 320, 000 d. =20.00>
Problem 1) 2 9 &et Ta6able /ncome of #esident Citi3en
The followin! are the reported income and e$penses of a resident citi/en<
KKKWithin KKKK&utside
'ompensation income 32(0, 000 3 J 0 G
7usiness income (00, 000 *00, 000
7usiness e$penses 200, 000 300, 000
8iidend income (0, 000 100, 000
Ae2uired< 'ompute for the net ta$able income before personal e$emption that should be reported in the annual
income ta$ return.
Problem 1)-9 &et Ta6able /ncome of #esident 0lien
The followin! are the reported income and e$penses of a resident alien<
KKKWithin KKKK&utside
'ompensation income 32(0, 000 3 J 0 G
7usiness income (00, 000 *00, 000
7usiness e$penses 200, 000 300, 000
8iidend income (0, 000 100, 000
Ae2uired< 'omute for the net ta$able income before personal e$emption that should be reported in the annual ta$
return.
Problem 1) 2 11 &et Ta6able /ncome of &onresident 0lien
The followin! are the reported income and e$penses of a nonresident alien<
KKKWithin KKKK&utside
'ompensation income 3 (00, 000
7usiness income *00, 000
7usiness e$penses 300, 000
8iidend income 3 (0, 000 100, 000
Ae2uired< 'ompute for the net ta$able income before personal e$emption that should be reported in the annualL
income ta$ return.
Problem 1) 2 12 &et Ta6able /ncome of Domestic Corporation
The followin! are the reported income and e$penses of a domestic corporation<
KKKWithin KKKK&utside
7usiness income 3 (00, 000 3*00, 000
7usiness e$penses 200, 000 300, 000
8iidend income from forei!n corporation (0, 000 100, 000
Ae2uired< 'ompute for the net ta$able income that should be reported in the annual income ta$ return.
Problem 1) 2 13 &et ta6able /ncome of Forei*n Corporation
The followin! are the reported income and e$penses of a forei!n corporation.
KKKWithin KKKK&utside
7usiness income 3 (00, 000 3*00, 000
7usiness e$penses 200, 000 300, 000
8iidend income from forei!n corporation (0, 000 100, 000
Ae2uired< 'ompute for the ne$t ta$able income that should be reported in the annual income ta$ return.
Problem 1) 2 1 5uarterl+ /ncome Ta6
?andsome 'orporation1s 2uarterly operatin! records show the followin!<
H : ) A T # A 5KKKKKKKKK
KKKKKKFirst KKKK5econd KKKKThird KKKKKFourth
5ales 31, 000, 000 3-00, 000 3*00, 000 31, 200, 000
The cost of sale is *0@ of sale and the business e$penses allowed is "0@ of !ross income. )ssume that the amounts
are noncumulatie.
Ae2uired< 'ompute the income ta$ still due for the first, second, third and fourth 2uarters.
Problem 1) 2 1! 5uarterl+ /ncome Ta6
8ata of ?i!hland 'orporation, a domestic corporation, for the year 200$ are as follows< =8ata are all
noncumulatie>
H : ) A T # A
5KKKKKKKKK
KKKKKKFirst KKKK5econd KKKKThird KKKKKFourth
5ales =noncumulatie> 3(00, 000 3*00, 000 3"00, 000 3.00, 000
&peratin! e$penses before interest and
contribution
120, 000 10, 000 1(, 000 1*0, 000
Interest e$penses 10, 000 10, 000 1(, 000 1(, 000
'ontribution =deductible in full> 20, 000 "0, 000
&ther reenue<
8iidend income =domestic> "0, 000
Aoyalty income *0, 000
Aent income 30, 000 30, 000 30, 000 30, 000
Interest income 1(, 000 10, 000 1(, 000 20,000
The !ross profit is "0@ based on sales.
Ae2uired< 'ompute the followin!<
1. Huarterly income ta$ due and payable
2. Income ta$ still due and payable in the fourth 2uarter
3. Total passie income ta$
Problem 1) 2 1" /ncome Ta6 -till Due
4ariposa 'o., a domestic corporation, reported the followin! ta$ payments for the first to the third 2uarters of the
ta$able year =cumulatie amount><
Huarters
First 5econd Third
7usiness income 32, (000, 000 3", 000, 000 3(, (00, 000
Itemi/ed allowance deductions 1, (00, 000 2, (00, 000 3, 000, 000
Ta$able income 31, 000, 000 31, (00, 000 32, (00, 000
Income ta$ 3 320, 000 3 "-0, 000 3 -00, 000
Les< 3ayment preious 2uarters G 0 G 320, 000 "-0, 000
Income ta$ payments 3320, 000 31*0, 000 3 320, 000
For the fourth 2uarter, the company reported the followin!<
7usiness income 3,, (00, 000
Itemi/ed allowable deductions ", 000, 000
'apital !ains 200, 000
3assie income earned outside the 3hilippines 100, 000
Income ta$ withheld per 7IA Form 230, furnished by credit card company "0, 000
Ae2uired< 8etermine the income ta$ still due and payable
Problem 1) 2 1% 0nnual /ncome Ta6
5addam, a sin!le indiidual ta$payer, receied the followin! income durin! the year.
Ta$able monthly salary after allowable deductions, net of 3", 000 creditable withholdin!
ta$
31*, 000
Interest income, net of final withholdin! ta$ of 32, 000 -, 000
First three =3> 2uarters1 ta$able business income after allowable deductions, net of 3.0, 000
income ta$ for three =3> 2uarter1s income ta$
300, 000
The net ta$able business income for the 2uarter is 3110, 000.
Ae2uired< ?ow much is 5addam1s annual income ta$6